Transcript Unit 2 - Economic Integration - U

Economic Integration – Part 1
How rich is the EU compared to the rest
of the world?
37 300
27 800
24 700
10 793
10 035
10 000
6 400
3676
1 326
EU
China
468
Japan
Russia
United States
Size of economy: Gross Domestic Product in
billion of euros, 2006
EU
China
Japan
Russia
United States
Wealth per person: Gross Domestic Product
per person in Purchasing Power Standard, 2007
The EU – a major trading power
Share of world trade
in goods (2006)
Share of world trade
in services (2005)
EU
17.1%
Others
50.5%
EU
26%
United States
16%
Others
44.9%
Japan
6.6%
China
9.6%
United States
18.4%
China
3.8%
Japan
6.9%
Growth in Comparative Perspective
Common Market: Examples – Aerospace (Negative)
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Deregulation and competition
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Arianespace
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1978 – Airline ticket: London-Madrid MORE EXPENSIVE THAN London-NYC-Madrid
State-owned, national airlines – “national champions”
Monopolies (Air France, Alitalia, Lufthansa)
10 Countries involved, 1/3 stake held by EADS
>50% all commercial satellite launches
EADS – European Aeronautic, Defence, and Space
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2000 merger of Aerospatiale (Fr.); Daimeler(Chrysler) Aerospace (Germ.); CASA (Esp.); BAE (UK)
Airbus is a subsidiary, itself a consortium of European companies and governments
Common Market: Examples – TENs (Positive)
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Trans-European Networks
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Based in the Commission (Euro-bureaucracy)
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Infrastructure projects required for market’s efficient functioning
Transportation, Energy, Telecommunications
Operate in any and all member states
http://ec.europa.eu/avservices/video/video_prod_en.cfm?type=detail&prodid=681
&src=1
http://www.youtube.com/watch?v=XGPO-YmSbfs
Euro-zone membership status
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ERM II States
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Expected to Join ERM
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Denmark, Estonia, Latvia, Lithuania, (Sweden)
Poland, Hungary, Czech Republic, Bulgaria
Romania in 2010-2012
Britain is fully out
European Central Bank and EMU
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INDEPENDENT ORGANIZATION tasked with PRICE STABILITY
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Modeled on the Bundesbank
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Executive Board (8 members, unanimous agreement among Council
Board of Governors (Head of each euro-zone central bank)
Located in Germany, Dutchman (Wim Duisenberg) 1st president of the Exec Board
Exclusive Powers:
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Inflation near, but not to exceed, 2% per annum (aside: do we know about interest rates?)
Set euro-zone interest rates
Authorize printing of euro notes and *coins*
Maintain national foreign reserves
Eurosystem
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Network of central banks of ALL member states (even Britain)
Carry out printing of money, application of ECB policy in the member states
ECB funding is FROM the Eurosystem’s banks, not from the EU budget
Convergence Criteria and SGP
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Convergence Criteria for euro membership
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Stability and Growth Pact
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Budget deficit <= 3% GDP
National Debt <= 60% GDP
Inflation <= 1.5% of 3 best performers
Currency stability, +/-2.5% limit on ERM fluctuations
Interest rates not less than 2% lower than highest-rate state
Enforces convergence criteria among euro-zone members
Max 3% GDP deficits
Max 60% GDP debt
Amended in 2005 to allow “temporary” violations (loosely defined)
http://www.nrc.nl/international/article2160480.ece
http://en.wikipedia.org/wiki/Stability_and_growth_pact#Member_states_by_SGP_
criteria
Economic Integration – Part 2
Beating inflation
European Economic and Monetary Union: stable prices
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Average annual inflation in the 15 EU-countries that used the euro in 2008
GDP per inhabitant: the spread of wealth
GDP per inhabitants in Purchasing Power Standards, 2007
Index where the average of the 27 EU-countries is 100
280
144
131 129 127
123 121
118 117
113 113
104 102 100
94 89
87
79
77 75
67 66 63
58 56
53
Bulgaria
Romania
Poland
Latvia
Lithuania
Slovakia
Hungary
Estonia
Portugal
Malta
Czech Republic
Slovenia
Greece
Cyprus
EU-27
Spain
Italy
France
Germany
Finland
United Kingdom
Sweden
Belgium
Denmark
Austria
Netherlands
Ireland
Luxembourg
38 37
Solidarity in practice: the EU cohesion policy
2007-2013: 347 billion euro invested for infrastructure,
business, environment and training of workers for less
well-off regions or citizens
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Regional fund
4
Social fund
4
Cohesion fund
Convergence objective: regions with
GDP per capita under 75% of the EU
average. 81.5% of the funds are
spent on this objective.
Regional competitiveness and
employment objective.
How is the EU’s money spent?
Total EU budget 2008: 129.1 billion euro
= 1.03% of Gross National Income
(ELMO – Alternative Breakdown)
Citizens, freedom,
security and justice
1%
The EU as a global player:
including development aid
6%
Natural resources:
agriculture,
environment
43%
Other, administration
6%
Sustainable growth:
new jobs, cohesion,
research
45%
Three pillars
The European Union
European
Community
domain
(most of
common
policies)
Common
foreign and
security
policy
The Treaties
Police and
judicial
cooperation
in criminal
matters
Common Agricultural Policy
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5% of the European Population, <3% GDP is agriculture (EU-15)
1950s, the Six – 20% population, 12% GDP
Currently, 19% population in Poland; 22% in Romania
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2007 about 40% EU Budget
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Contrary to the free market – protectionist
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“The most idiotic system of economic mismanagement” ever devised (The Economist)
Why?
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France demanded as key concession from Germany under Treaty of Rome
Price stability (Agri prices fluctuate more than industrial goods)
Push for European agricultural self-sufficiency
EU has 4x more agri exports than the US, largest in the world
Farmers vote (more than the rest of us)
Common Agricultural Policy
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Common Agricultural “Price-support” program
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Target prices – what farmers should get
Threshold prices – price of imported goods (to protect local agriculture)
Guaranteed prices – what the Commission will pay to take goods off the market
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EU obliged to buy surpluses – warehoused or given away as aid
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Problems:
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Reforms
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Too much production – technological advances
Problems with “dumping” surpluses
Inequality – 70% of CAP funds 20% of farms, usually the biggest and wealthiest
Inefficiency – prices artificially high (and costs to produce getting lower constantly)
Consolidation – fewer little farms, more conglomerates
EU payments to not grow (a boon to the golf course industry)
Separate payments from production, now a set amount per farm(er) (Decoupling)
Subsidies dropped for the biggest farms
What about the East? – Lump sums and a phase-in to CAP (10 years)
Structural and Cohesion Funds
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Economic development aid when GEP/capita <75% EU average
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Regional competitiveness aid when >75% average EU GPD/capita
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Territorial cooperation – transnational development and common problems
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7 Structural Funds
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European Regional Development Fund (aid to poor areas)
European Social Fund (employment and worker mobility aid)
“Guidance Section” incorporated in CAP (agricultural diversification)
Cohesion fund (aid to poor states to reform environmental standards and transport)
Fisheries Guidance (upgrade fleets, aid to ports, aqua-culture)
Solidarity fund (aid to respond to natural disasters)
Globalization adjustment fund (aid to sectors hurt by globalization and safety regulations)
Structural and Cohesion Funds
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Major foci: Development (of course)
and tackling unemployment
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Job creation, worker training,
educational programs, mobility
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Problems:
No standard education
27 States, 23 Languages
Lifelong Learning Program
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Preschool – vocational training
Europe of Regions: NUTS
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NUTS – Nomenclature of Territorial
Units for Statistics
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Here: NUTS-2
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http://www.youtube.com/watch?v
=uoU-Qz9T86o&feature=related
Economic Integration – Odds and Ends
CAP: Beneficiaries
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Recall that CAP subsidies only apply to the EU-15, thus excluding the 12 new members
CAP: A possible future
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Assuming all current reforms are finished, and no new policy changes are made
EU Budget
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http://news.bbc.co.uk/2/hi/europe/8036097.stm
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This is far better than anything I can offer you, bar me
ripping off the BBC and re-packaging this as my own
Ireland: Celtic Tiger
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WideAngle Documentary -- http://www.pbs.org/wnet/wideangle/episodes/mixedblessings/video-full-episode/1119/
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Includes discussion of all your favorite topics – including history, the common market,
globalization, immigration, property bubbles, the marginalization of religion at the hands of big
business, Poland, and much, much more!
Newshour report on the Ireland more recently (also Poland) –
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http://vvi.onstreammedia.com/cgi-bin/visearch?user=pbsnewshour&template=template.html&squery=%2BVideoAsset:pbsnh020409
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OR I can talk about it (as I intended to do yesterday), and then you can have group
time.
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EITHER WAY I need 5-10 minutes with each group/country, so “group time” would
not mean “hooray, let’s leave early”
Ireland
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